“Under Armour is an operationally better company following our transformation over the past few years, with a clearly defined and focused strategy, enhanced go-to-market process, cleaner inventories and a stronger balance sheet,” said Under Armour President and CEO Patrik Frisk. “However, ongoing demand challenges and the need to drive greater efficiencies in our business requires us to further prioritize our investments to put our company in the best position possible to achieve sustainable, profitable growth over the long-term.”
Full Year 2019 Review
- Revenue was up 1 percent to $5.3 billion (up 3 percent currency neutral).
- Gross margin was 46.9 percent, a 180-basis point improvement from 45.1 percent in the prior year driven predominantly by supply chain initiatives, channel mix and prior period restructuring charges.
- Selling, general & administrative expenses increased 2 percent to $2.2 billion, or 42.4 percent of revenue.
- Operating income was $237 million.
- Net income was $92 million or $0.20 diluted earnings per share
Initial 2020 Outlook
The company’s initial 2020 outlook currently includes an estimated negative impact of the coronavirus outbreak in China of approximately $50 million to $60 million in sales related to the first quarter of 2020. This outlook does not contemplate additional financial or operational impacts past the first quarter of 2020. Given the significant level of uncertainty with this dynamic and evolving situation, full year results could be further materially impacted. The following outlook also does not include any possible benefits or costs from a potential restructuring initiative. Key points related to Under Armour’s full year 2020 outlook include:
- Revenue is expected to be down at a low single-digit percent compared to 2019 results. This reflects a mid to high-single-digit percentage decline in North America as work continues to rebalance the business against market demand dynamics and pro-active strategies to better protect the company’s premium brand positioning. The international business is expected to grow at a low double-digit percentage rate.
- Gross margin is expected to be up approximately 30 to 50 basis points versus the prior year due to ongoing supply chain initiatives and regional mix benefits.
- Operating income is expected to reach $105 million to $125 million.
- Interest and other expense net is planned at approximately $30 million.
- Diluted earnings per share is expected to be in the range of $0.10 to $0.13, inclusive of an estimated $0.01 to $0.02 negative impact from the company’s equity interest in its Japan licensee.
- Capital expenditures are planned at approximately $160 million compared with $144 million in 2019.
2020 Restructuring Initiative
The company also announced it is currently assessing a potential 2020 restructuring initiative to rebalance its cost base to further improve profitability and cash flow generation. In connection with this potential plan, the company is considering $325 million to $425 million in estimated pre-tax charges for 2020, including approximately $225 million to $250 million related to the possibility of foregoing opening a flagship store in New York City while pursuing sublet options for the long-term lease.
Based on initial assessments and timing of a potential restructuring initiative, the company could realize approximately $30 million to $50 million in pre-tax benefits in 2020. The company expects to complete its assessment during the first quarter of 2020, and subject to board review and approval, would announce any potential restructuring charges upon adoption of any plan.